Kent County Cricket Club Ltd Releases 2010 Financial Results

Monday 7th March 2011

Kent County Cricket Club Ltd Releases 2010 Financial Results

Kent County Cricket Club Limited has today announced a post tax profit of £3,535,426 for the year ending 31 October 2010.

The Treasurer’s Report from the Annual Report is published in full below:

Honorary Treasurer’s Report
Year ending 31 October 2010

The financial results this year are the proverbial “curate’s egg”. On one hand, there is the crucial disposal of two parcels of land at a profit, after deferred tax, of over £4.1 million, which has enabled the re-development of the St Lawrence Ground to start. Against this must be set an operating loss of just over £595,000. The aggregate position is a profit figure of just over £3.5 million.

An accounting qualification is not needed to understand that repeated operating losses must cease. The announcement last month of another county’s auditor questioning whether their Club is a ‘going concern’ is a clarion call that continued operating losses ultimately have dire consequences. There are only two ways to turn this performance around – to drive revenues and cut costs. An operating loss of nearly £600,000 means that both of these actions have to be done with vigour. It also indicates that currently the Club is living well beyond its means.

The Committee understands these issues clearly and is firmly committed to doing what is necessary to return the Club to profitability and long term financial stability. There have been, and will continue to be, occasions when tough decisions on cutting expenditure have to be taken, despite considerable downside attaching to each alternative. The Committee devotes considerable time and energy to weighing the issues and is often faced with having to take the ‘least worst’ option. Sadly more decisions of this type may be necessary on the way to a sustainable financial future.

A summary of the year is that a dramatic fall in revenue of over £465,000 in match receipts, commercial revenue, catering and retail operations has had a catastrophic impact on profitability, particularly as many of our costs are fixed. Fortunately, as promised, a rigorous and detailed examination of our cost base took place last winter, so this loss of revenue was offset by a reduction in costs of £338,000.

Turning to the specifics of what happened in 2009/10, revenue was down by £352,000 or 7%, after adjusting for the concert proceeds last year. The major contributing factor to the income reduction was gate receipts, which were down by £243,000 or 36%. Members’ subscriptions were up by over £43,000 or 11% as were ECB payments by £98,000 or 6% (after adjusting for prize money received in 2009). This lack of attendances and the accompanying loss of catering income was the major deviation from our budgetary plans at the start of the year.

It is of no consolation that almost all counties have found trading difficult, with three other counties already announcing operating losses exceeding £2 million. There is no doubt that the FIFA World Cup and the lack of a cricket narrative last summer, with the major Test series not starting until late July, had a huge impact. With cricket ‘off the back pages’ throughout, the low profile of the game in the nation’s sporting consciousness in 2010 had a direct effect on the more casual cricket fan. Hopefully, a programme like last year’s will never be allowed to happen again.

Specifically, we lost the nearly £200,000 of receipts that in 2009 derived from the home T20 quarter final and the Australia fixture. The World Cup directly hit the T20 tournament. Our T20 group stage crowds were down by around £33,000 or 13%, despite there being three more home games. A particular example of the World Cup effect was our game at Beckenham against Surrey. Whilst Beckenham T20 games have averaged receipts of over £60,000 in recent years, this game starting 45 minutes after England had finished playing Slovenia, produced gate receipts of only £26,000. It is also clear from subsequent conversations that other summer sports, such as horse racing, suffered to a similar extent during the World Cup. We need to note this effect when setting budgets in 2014.

Catering net income was down by £69,000, as we would expect with lower attendances and corporate hospitality being affected by the economic downturn. Retail net income was down by £26,000 and commercial net income fell by £77,000, again reflecting the difficulties of the current climate.

The promised rigorous approach to budgeting and management accounting had a considerable effect as we were able to reduce non-cricket costs by £338,000, of which £190,000 were direct and £148,000 administration, having adjusted for the costs of the concerts. Administration and marketing salaries fell by £143,000 or 30%. We will continue to take a robust approach to ensure that we do not build an off-field bureaucracy.

Despite the significant overall reduction in non-cricket costs and a great deal of speculation to the contrary, we spent more on cricket in 2009/10 than in any other year in the Club’s history (over £2million). Despite not renewing the expired contracts of three Internationals for 2010, player salaries reached a record high of £1,486,000 (up 2.5%) and have now risen by 90% since 2002. The balance of the cricket spend is made up of coaching salaries and the costs of fulfilling our 1st and 2nd XI fixtures, home and away. We are aware from statistics provided by ECB that our playing budget has compared very favourably with many other counties, being greater than those of a number of Division One clubs and Test Match Grounds. Getting these costs under control began, very painfully, at the end of last season with six players leaving the Club. As a result, we anticipate that our cricket costs will be around £250,000 lower in 2010/11.

The meeting of the 18 County Treasurers at Lord’s after the end of the season was informative. The mood was one of considerable gloom, but there was an over-riding sentiment that costs in the game need to be got under control and that player salaries would as a result come under significant pressure in 2011, as contracts come to an end. With many counties announcing significant losses, we may find a different salary environment exists in 2011 and 2012. There will always be some counties with deeper pockets than us, however we need to ensure that we continue to procure value for money and spend within our means.

During the year, our management accounting process threw up a number of areas of concern, namely our Beckenham, catering and retail operations. We sustained material losses at Beckenham in 2009/10, mainly as a result of the poor winter and its effect on pitch hire and bar receipts. Our lease came to an end on 31st October 2010. We have renewed it on a temporary basis at considerably better financial terms. The case for Beckenham is compelling, giving us a presence in the most populated part of the county and a second ground, however this needs to be, at worst, a break-even facility. We continue to liaise closely with Leander Sports & Leisure, our landlords, to ensure that our presence there is cost effective.

Our catering operation performed considerably below expectations due to economic conditions and therefore we had become overstaffed for the current level of activity. We have therefore reduced costs in this area for 2010/11. We hope that this, combined with refreshed and new facilities as part of the redevelopment and a more vigorous sales approach, will improve our returns next year. Our retail operation did not make sufficient profit last year and consumed around £120,000 of working capital. Considerable de-stocking took place before and after the year-end and greater focus is now being placed on margins and rates of turnover.

The Committee are hopeful that the further cost cutting undertaken, together with the revenue generating opportunities presented by the redevelopment and the considerable sharpening of the Club’s commercial strategy, will lead to a dramatic improvement in our financial performance.

The last six months have seen a greater urgency in all commercial areas. Having been appointed Commercial Director, Pat Mellsop immediately set about increasing our sense of direction and purpose. A clear commercial plan has been draw up detailing the new approach and already this is yielding results. There has been a marked upturn in year on year membership sales, achieved through a combination of ‘early bird’ offers, direct debit payment options and repackaged ticket combinations, such as the introduction of the ‘Six Pack’. Admission prices have been reduced for 2011 following consultation and there are structured plans to drive attendances at one day games throughout the season.

A newly configured corporate sponsor and partner scheme, including a Business Club called ‘Team Kent’, has been developed to be more appealing to potential supporters and ensure that real value is delivered. This is going well and it is encouraging that we are attracting interest from organisations not previously involved with the Club.

The 2011 season will also see the introduction of an on-line ticket purchasing system with a ‘print at home’ option. This will allow supporters to secure advance ticket prices until the day of a match, something that market research tells us the more casual supporter really values.

As the redeveloped St Lawrence Ground takes shape, the sales and marketing team will take on the development of all areas of our business, including the enhanced conference and banqueting business. Members will have an opportunity to hear about the new strategy and our successes at a forum to take place shortly.

We have been conservative in setting the 2010/11 budget, particularly as we are ‘flying blind’ on the revenue impact of the new facilities. We know that all counties who have installed floodlights have seen an upswing in gate receipts, but can only estimate the quantum of our increase. We are also unsure of the extent to which our catering and hospitality revenues have been suppressed by the tired facilities we have all been enduring.

Finally, we are unclear as to the likely extent of the Government’s austerity measures and current economic conditions on revenues in general in 2011. The budget for 2010/11 therefore assumes an operating loss of around £400,000, given that we have interest of around £180,000 to pay to Canterbury City Council. We had always anticipated that the first year of the redevelopment would be difficult, with the facilities taking time to produce revenue, but the full interest cost being payable. Clearly, a return to gate receipts at the levels experienced in 2008 and 2009, together with improved commercial and hospitality returns, would soon see the figures coming closer to break-even. In any event, our cash flows are being monitored very carefully to ensure that we are able to meet our obligations and emerge from the redevelopment in decent shape.

Finally, on the income and expenditure account, it should be noted that by offsetting trading losses and taking advantage of ‘rollover relief’ (a tax relief that allows chargeable gains to be deferred for ten years when disposal proceeds are re-invested in new trading assets), we have been able to reduce legitimately our current corporation tax liability to zero. Given that we have crystallised disposal proceeds of almost £5.7 million, this is a useful outturn. This approach will leave an estimated tax liability of around £450,000, payable in 2021, which we will fund by setting the appropriate amount aside annually. The amount is provided for in full this year.

On the asset side, as last year, Strutt & Parker have carried out a revaluation of our freehold land and buildings. After the disposal of the two parcels of land, the value of our tangible assets currently stands at just under £8.8 million.

Our debtors at the year end stood at £3.4 million, as a result of a significant tranche of the proceeds from Bellway (just under £2.5 million), not being due for payment until after the year-end. This amount was paid on 2nd November 2010. Our short term creditor balance has been reduced as a result of the elimination of our overdraft. The long term creditor balance reflects the loan from Canterbury City Council, which was finally concluded as £4 million at a fixed annual interest rate of 4.36% for thirty years. This creates a fixed level repayment obligation of £244,000 per annum. During the year, George Kennedy, our Chairman, lent the Club £300,000 for which we were extremely grateful at a time when our cash flow was difficult. This amount was outstanding at the balance sheet date, but has been repaid subsequently.

Members should also be aware that installing floodlights and enlarging the players’ dressing rooms has made the Club eligible for ECB payments of £800,000. Last year, for the first time, we held meetings in advance of the AGM with several members who wished to get a more detailed understanding of the Club’s finances. We are very happy to do this again and any member interested should contact Carolyn Prosser at the Club.

Members will note that a resolution will be put to the AGM recommending that Reeves replace Larkings as our auditors. The detailed reasons for this recommendation are given elsewhere, however I would like to take this opportunity to thank Larkings for the service that they have given to the Club for sixty years and in particular Michael Moore who has worked on the Club’s affairs in various capacities for over forty years.

We remain very grateful to those Members, Supporters and Sponsors who stuck with us, when both household and corporate budgets have come under considerable pressure. Particular thanks should go to Shepherd Neame, Demelza, ECL Telecom and Samurai Sportswear, however every sponsor, at whatever level, should be recognised. Canterbury City Council should also be thanked for their considerable vote of confidence in providing the loan that has supported the redevelopment. Finally, I would like to thank the Finance Team and all of those who have helped with managing the Club’s finances in these difficult times.

The Chairman, General Committee and I have every faith that our Chief Executive Officer and his team are capable of driving the Club forward and look forward to a successful 2011, both on and off the field.

Simon Philip
Honorary Treasurer

The Annual General Meeting will be held at the St Lawrence Ground, Canterbury on Tuesday 5 April, commencing at 7pm. Details have been mailed to members and they are encouraged to attend.

For a copy of the report and accounts click here: